Business

Bigger tax refunds lop state budget

Topeka  State government's economic woes worsened during the past two months in part because of huge business tax refunds, officials said Wednesday.

"In May and June, as we tallied revenues, we were down on compensating use tax," said Gov. Kathleen Sebelius' budget director Duane Goossen. "Part of that is because of large refunds paid out in both those months."

Goossen and officials at the Kansas Department of Revenue declined to divulge who received the refunds, saying that kind of tax information is confidential.

"We've had to make large refunds," said Richard Cram, director of the Office of Policy and Research with the Revenue Department.

A report by the Kansas Legislative Research Department notes that the compensating use tax receipts were down, in large part, to a single refund of $9.7 million.

"It appears that a taxpayer may have been overpaying compensating use taxes in a significant way," the report states. "Additional refunds to this taxpayer are currently anticipated in the coming months," the report concluded.

The compensating use tax is paid on merchandise purchased in other states, and used, stored or consumed in Kansas on which no sales tax was paid.

"This use tax compensates for the lack of sales tax paid at the time of purchase," according to the Revenue Department.

It mostly applies to businesses, but can also apply to individuals buying consumer goods over the Internet or through mail-order companies.

The compensating use tax rate is the same 5.3 percent as the state sales tax rate.

The total amount of refunds during the past two months have been significant.

In May, the state collected $14.7 million in compensating use tax, which was $9.3 million less than earlier projected.

In June, the state collected $8.5 million in the tax, which was $15.5 million below expectations.

That equals a $24.8 million shortfall over a two-month period. Overall, state tax revenue was $61 million less than projected for the entire fiscal year that ended June 30.

That shortfall prompted Sebelius last week to request that state agencies reduce their budget proposals for the new fiscal year by up to 2 percent.